How much life insurance do I really need?

Posted by Steven

How much life insurance do you really need? It takes a few steps to calculate, but it’s not rocket science. The only thing that really matters when it comes to determining how much life insurance you need, is how much income do your dependents need if you aren’t around? To answer this you have to first answer these two questions;

  1. how much do you spend each month? (Use your bank statements to calculate your monthly average spending) and
  2. do you have any realisable investments or assets other than that marked for retirement or future know expenses like kids education?

A working example to calculate your insurance needs…. Let’s say you know you spend $6,000 each month to pay all your bills including your debt repayments. Of the $6,000, you earn $3,500 and your partner earns $2,500. Your monthly income is equivalent to $42,000 a year ($3,500 x 12). You need enough protection insurance so that if you pass away, you could invest the proceeds and earn $42,000 after tax. How do you calculate that? If you assume you could earn 5% on the money, simply divide $42,000 by 5% and you have your answer. In this example, the number is $840,000 (42,000 / 0.05). That’s how much savings you need to invest at 5% to earn $42,000. The $840,000 is what your survivors need to get through until they don’t need your income. You can offset it with other insurance you already carry or if you have savings or realizable assets that isn’t earmarked for retirement or other purposes. This isn’t a scientific approach – it’s a ballpark calculation. But it’s pretty close to what you need, and it’s a calculation you can do yourself. It’s also a heck of a lot better than a wild guess.

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Love your business partner, but can you work with their spouse?

Posted by Steven

If you’re in a partnership business (regardless of the legal structure) you definitely need some life insurance. In all likelihood each shareholder brings a unique skill set to your business; it’s probably the fibre that brought you all together in the first instance. Together your skills complement each other and provide all the necessary tools to run a successful business. In the ordinary course of events, if one partner should die the likelihood is you’re about to inherit by default a new business partner. One which is very unlikely to have the same skill set as your last, a business partner whom now owns shares in your business, where  in all probability they would have preferred the cash.

A simple buy-sell agreement in the event of a business partner’s death or disability will allow one partner to buy out the other partner(s) in the case of death or terminal illness. Each partner simply buys a policy on each of the other partners. In the event a partner dies, the other partners have the money to purchase that portion of the business and pay the deceased family or beneficiaries.

Sounds simple and obvious enough, so why are business owners so under-insured in this space given the low cost of protection insurance?

  • In many circumstances there can be a large age difference between partners. This is often the case in technology related industries; technological expertise comes from the younger partner, and the finance from the older partner.  Here the challenge is to get the same cover in place where lives insured may be very different by way of health and age and hence the cost of the policies will be very different.
  • When you start out, it’s difficult to put a future value on the share capital of the business in 5 or 10 years-time.
  • Some-times money does not solve the problem. Acquiring the business partner’s shares, does not solve the problem of acquiring their skill set or intellectual property.

Like all life insurance products, if you can’t afford what you’re likely to need, having some protection is better than none at all!

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Fear no animal or’s humans and mosquitoes…

Posted by Steven

Bill Gates recently used an infographic to publicize a fight against diseases carried by mosquitoes.

Sharks are responsible for only ten human deaths a year. Around 100 people are killed every 12 months by lion, while crocodiles are responsible for about 1000 deaths in a year.  Among the most dangerous animals listed in the graphic are dogs, at number four, due to 25,000 human deaths a year, mostly from rabies caught during dog attacks. The third-deadliest species for humans are snakes, which are responsible for 50,000 deaths every year.

Nearly ten times as many people meet their deaths at the hands of other people, totalling 475,000 annual fatalities. Mosquitoes are the world’s number one killer.

The worst is malaria, which kills more than 600,000 people every year; In addition to malaria, several species of the animal can carry several other potentially deadly diseases, including encephalitis, dengue fever and yellow fever.

Mosquitoes are native to every area of the world, except Antarctica. There are more than 2,500 species of the flying insect known to mankind.


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Hello TradeMe – welcome to the world of life insurance

Posted by Steven

With much fanfare TradeMe have launched into the world of Life and Health Insurance distribution. Naturally, there has been chatter in the industry; Why TradeMe?  What will this do to the industry?

The aggregation business model is strong in other countries, iSelect in Australia, SuperMoneyMarket in the UK and Geico in the US all lead the way in this space. There is no NZ equivalent with the range of products and services these companies offer, but one would have to think Life Direct would be the best contender given its standing in the life and health space. From the side-line, one would think the Life Direct model had ample opportunity to flourish as an independent distributor. So, what has TradeMe got to gain by purchasing Life Direct?

Phil Macalister in GoodReturns questioned TradeMe boss Jon Macdonald, including asking why not implement a Pinnacle Life online model, in which the consumer can actually ‘buy’ on-line.  Would Pinnacle Life not have been a better fit for TradeMe consumers?

Unfortunately, Macdonald did not reveal much, other than to suggest the obvious strategy of growing market share by levering their vast website traffic to promote the offering, but making no comment on anticipated sales increase. Pinnacle Life in his view was not the right fit, TradeMe is not looking to purchase a manufacturer of life insurance products.

Pinnacle Life view TradeMe’s acquisition of Life Direct as positive for the industry. Yes, Life Direct will be a competitor, but they always have been. We can’t see what will change, other than Life Direct not needing to advertise as much – because they get a free ride on the back of TradeMe traffic and accessing TradeMe’s database. However, it may require renegotiating the commission they receive from the insurance companies that they represent, to feed the TradeMe distribution machine.

The good news for the industry is that TradeMe has elevated the category of ‘Life Insurance’ in the market for the entire industry and we believe Pinnacle Life will be a beneficiary. If it’s ok to source life insurance through TradeMe, then buying life insurance online direct from Pinnacle Life or a Cigna becomes an easier and maybe preferable option. Introducing a Life Insurance as a category on the TradeMe website tells consumer that ‘maybe you don’t need a broker after all to buy life insurance’.

The risk insurance market in NZ is worth about $1billion each year. Direct companies currently occupy only about 6% to 8% of the market. The banks enjoy approximately 28% of this market and the balance is served by independent financial advisers.

It’s difficult to fathom that TradeMe is targeting the ‘direct’ market segment given its relatively small size. And since the banks have a clear segment of their own, this leaves the segment traditionally served by financial advisers.

So, the question is probably not about how TradeMe will impact Pinnacle Life or other direct-to-market insurers; it is more about how TradeMe will impact the independent financial advisers.

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One joint life policy is not always better than two individual policies

Posted by Steven

You may automatically assume that buying a joint life insurance may be cheaper and better than buying two single life policies, BUT this is not necessarily the case.

For starters, generally taking out two separate life policies may be marginally more expensive, but you will get twice the pay-out if you both die during the insured term. With a joint single life policy there would only be a single pay-out.

Also, if you take out a joint life first death policy (often used for covering mortgages), the policy would pay-out then cease in the event of either of you dying during the term. This will leave the surviving partner having to take out a new life policy, which is often a lot harder and more expensive give the increased age of the surviving partner.

Finally, having each life separately underwritten and insured on its own merits, makes each party independent of the other. Hence the policy is not dependent on the survival of the marriage or partnership. With individual policies, all the potential arguments (like changing ownership or cancelling a joint policy) disappear.

So don’t just assume a first death joint policy is best for you.

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Safest way to travel in NZ …… public transport!

Posted by Steven

Safest way to travel in NZ …… public transport!

In promoting our complimentary accidental death cover offering, we came up with some interesting statistics about causes of death by travel accident. Who would have thought the safest way to travel in NZ is public transport!

The graphs below show a snapshot of the latest comprehensive statistics we could find.



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Snake oil or the real deal?

Posted by Steven
No doubt about the rise in popularity of homeopathic medicine and other alternative treatments…. but do they really work? Here is a representation of scientific evidence that attests to the effectiveness of some of the most popular supplement.
Do Health Supplements Really Work?

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Announcing our Special Events Benefits

Posted by Steven

Pinnacle Life recently announced special event benefits for its Life and Mortgage products. The benefit entitles policyholders to request increased levels of cover on the basis of changing life events, without requiring further medical evidence.

A ‘special event’ gives policyholders the opportunity to increase cover with no further questions asked regarding the insured person’s health. You qualify for a special event increase if:

  • the policyholders is aged 59 or less and has taken out or increased their mortgage within the past 3 months
  • the insured person has married (including a civil union), divorced or
  • the policyholder become a parent within the past 6 months.

Policyholders are entitled to 3 special event increases, with no more than 1 increase per year, provided that no single increase exceeds $250,000 and the cumulative total of all such increases doesn’t exceed 50% of the cover when the policy was initially acquired.

Where the special event relates to a mortgage, the increase in cover can’t exceed the amount by which your mortgage has increased. A special event increase is not available if the life insured is already loaded by more than 50% due to the insured person’s health.

In the coming weeks, Pinnacle Life will be incorporating the special events wording into the documentation of standing policies and will contact current policyholders who may qualify. The special events program clause is already available for new policies issued from the Pinnacle Life website.

Current policyholders can contact Pinnacle Life directly with any questions about how the special events program may affect their current policies

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Can marriage insurance protect a marriage?

Posted by Steven

On a recent visit to Beijing, China’s Sunshine Insurance Group showed me just how innovative they are in developing new products. Chinese life insurance industry may not yet be online, but in terms of product offerings, they claim to be the most innovative yet when it comes to insuring risk. To prove his point he described their recently introduced a new marriage insurance called “love you forever ” aimed at protecting the rights of wives in divorce.

According to the company, the insurer must be the husband and the wife will receive 60, 80 or 100% of the interest in the policy on divorce or on reaching its expiry term, whichever should come first. Fifty years after being insured, the wife will receive a payoff from the company to celebrate the golden wedding.

Using NZ currency equivalents, if the husband buys a $100,000 policy, on the 50th anniversary, his wife will get $800,000 from the account if she had a 100% interest in the policy. In the event of a divorce, the pay-out is substantially reduced. The incentive to maximise the pay-out is to stay married for the full term of the policy.

Sunshine Insurance Group said that women are still a vulnerable group in society as well as in marriage, so this was a way of protecting women’s rights. Some believe the idea is meant to reduce the chance of a husband having an extramarital affair.

However, other Insurance companies have expressed concerns about marriage insurance, pointing out that some couples might choose to divorce in order to qualify for a pay-out, and then re-marry, as there was nothing in the insurance contract preventing such abuse. Others criticise the stipulation that the wife benefits because sometimes wives are equally responsible for divorces.

Marriage insurance… innovation or just another attempt by Insurance Companies to incentivise its policy holders to retain their investment linked insurance policies?

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Worst time to travel by car…. around midnight Saturday!

Posted by Steven

The World Health Organisation recently released its Global Status on Road Safety Report 2013. You decide how NZ compares with the “key facts” provided by the WHO in the table.

World key facts NZ key facts
About 1.24 million people die each year as a result of road traffic crashes. In 2011, there were 259 fatalities in NZ per year
Road traffic injuries are the leading cause of death among young people, aged 15–29 years. In the ending 2011, 99 fatalities were in this age group. That makes 38.2% of all fatalities were aged between 15  – 29.
Half of those dying on the world’s roads are “vulnerable road users”: pedestrians, cyclists and motorcyclists. We fair much the same, see graph “Proportion of deaths by road users type” below.
Without action, road traffic crashes are predicted to result in the deaths of around 1.9 million people annually by 2020 See chart “Fatal crashes by time of day” to learn why we should look to minimise our travel around midnight on Saturdays and early mornings Sunday.
Only 28 countries, representing 416 million people (7% of the world’s population), have adequate laws that address all five risk factors (speed, drink-driving, helmets, seat-belts and child restraints) Please to report that NZ is one of the 28 countries with vigorous road safety laws in place.

Proportion of road deaths by user type



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